A “Mini China” in the Making and How You Can Profit

Stand on a street corner in Hanoi and sooner or later a Mercedes-Benz, a Porsche or Lexus will glide past. Twenty years ago, this place was all bicycles. Now, it’s all scooters and imported cars.

I visited Vietnam in January to get a better handle of the big growth story unfolding there. I stopped by Ho Chi Minh City in the south (still called Saigon by the locals). Then I moved onto the country’s capital Hanoi in the north. Signs of growth were everywhere.

There’s an infectious energy about Vietnam that you feel as soon as you arrive at the airport. Sure, you have to get past the surly passport officials first; this is still a Communist nation after all. But whatever is left of Ho Chi Minh’s vision of a Communist nation has been blended with the relentless hustle of market capitalism.

In downtown Saigon near my hotel, workers were laying the foundation for a $125-million high-rise development. When finished it will include a 231-room, five-star hotel, 120 luxury apartments and a convention center.

Just behind it stands the 60-story Bitexco Financial Tower, complete with helipad and 16 high-speed elevators. This gleaming glass tower will provide over one million square feet of office space for the rapidly expanding city.

Walk down any street by day in Ho Chi Minh City or Hanoi, and locals will try to sell you something. And after the sun goes down, there are night markets where you can pick up the latest Gucci handbag and Hollywood movies (all copies, of course) at knockdown prices.

The real emerging market superstars are the “pre-emerging markets”—smaller overseas growth markets like Vietnam that remain under most investors’ radars and yet are some of the best performers in terms of stock market gains.

Thanks to its low wage costs, an export-driven economic model and a growing middle class—Vietnam is a “mini China” in the making.

Vietnam’s economy has grown at an average rate of 7% over the last 20 years. To put that in perspective, that’s double America’s projected growth for this year. The key to Vietnam’s success has been a program of economic reforms known as doi moi (literally “renovation”) put in place by the government in 1986.

These ended the attempts to collectivize industrial and agricultural production and allowed private companies a role in the economy.

Since that process, Vietnamese entrepreneurs have created nearly half a million new companies and tens of millions of new jobs. But more reform is now needed for the next phase in Vietnamese economic growth to take root.

Just like its big brother, China, Vietnam needs to move away from its export-led growth model and start to foster greater domestic demand. The problem with the current model is that it relies a great deal on exports of raw materials such as crude oil, rice, coffee and agricultural products. This leaves the economy open to dips in commodities prices.

More emphasis on education levels and human resource training will allow Vietnam to process its raw materials and add extra value to its exports. It will also put more money in the hands of Vietnamese workers and create a healthier domestic economy.

Much of the world is focused on China. But China is a crowded trade right now. And signs of strain are starting to show. China has undertaken a number of measures recently to try to curb inflation, including raising interest rates and cutting back on bank lending. If China continues to struggle, investors will start to look elsewhere for profits. And one of their first ports of call will be Vietnam.

Vietnam’s stock market was mostly stagnant in 2010. But it’s started off this year with a strong performance, boosted in part by the appointment of a broadly market-friendly trio of leaders at the top of the Communist Party of Vietnam.

Vietnam faces headwinds in the form of increasing inflation rates, downward pressure on the local currency, the dong, and an ongoing debt crisis at large state-owned shipbuilder Vinashin. And in December ratings agency Moody’s downgraded Vietnam’s sovereign debt rating one notch as a result. But despite the downgrade Vietnam’s stock market index has rallied—a strong bullish signal.

The only other two Southeast Asian nations that offer comparable growth prospects to Vietnam are Cambodia and Laos. I visited Cambodia on this recent trip as well and was impressed by the progress this once war torn country has made. But Cambodia doesn’t have a stock market yet. And Laos’s stock market only has one stock listing.

Vietnam offers one of the strongest growth opportunities in the region.

In the current issue of International Living magazine, I share the easiest way to play Vietnam’s growth. It gives you easy exposure to Vietnam at a low cost…and as the Vietnamese economy catches up to its bigger, more sophisticated rivals in the region, the potential is huge.

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